Shares of Hyderabad-based drug maker Aurobindo Pharma Ltd. dropped more than 3 percent on May 29 immediately post earnings declaration. However, the stock recovered in the latter part of the trading session and ended the day at Rs 610 per share marking no gains intraday. Brokerages are positive on the stock even though the management is cautiously optimistic about the company's growth outlook.

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DAM Capital, with a 'buy' rating and Rs 809 as the target price, says the US sales were below estimates driven by lower Oral Solid Dosage (OSD) sales, however, the injectable sales recovered in the fourth quarter. The brokerage adds that Aurobindo showcased a strong comeback in the second half of the financial year 2022-23 underlining robust of its business model. There will be visibility on improving growth as relative price stability begins to emerge in the US.

DAM Capital says the pharma player is well placed to fund ambitious research and development and capex plans through internal accruals. The meaningful impact of these investments shall be visible from FY25 onwards. Another trigger that this brokerage views is the commissioning of the Pen-G API plant in FY25 under the PLI scheme.

Kotak Institutional Equities, with an 'add' rating and Rs 625 as the target price, says the moderation in input costs shall lead to strong EBITDA margin expansion in FY24. The brokerage expects Aurobindo Pharma to deliver CAGR of 15 percent in EBITDA from FY23 to FY26.

Also read: Aurobindo Pharma gets final USFDA nod for cancer treatment drug

Elara Capital, with an 'accumulate' rating and target price of Rs 691 says there is scope for valuation improvement over FY24 to FY25. The stock currently trades at 13 times its FY24 core earnings. The management is optimistic about its US business, stable prices in the generics market and pick up in demand. However, the brokerage house says the key risks for this stock are delays in key launches in the US Generics market and Biosimilars in Europe.

Citi says for the valuations to sustain, benefits of improved generic pricing scenario and supply side disruptions in US generics is necessary. Citi has a 'buy' rating with Rs 660 as target price. Another brokerage, Bank of America has a higher target price of Rs 725.

Aurobindo Pharma reported better-than-expected performance for the fourth quarter of the financial year 2022-23. The revenue rose 11 percent year on year to Rs 6,473 crore in the March ended quarter. This is 10 percent higher than the CNBC-TV18 poll.

The EBITDA margin slipped to 15.5 percent versus 16.8 percent in the year-ago quarter but was higher than the estimated 15 percent. Net profit stood at Rs 506 crore, down 8 percent, but higher than the CNBC-TV18 poll estimate was Rs 497 crore.

The optimism is reflecting in its stock price as well, as it rose nearly 7 percent in trade on May 30 at 9:30 am.

Also read: Aurobindo Pharma to transfer antibiotic API division to Apitoria Pharma

(Edited by : Vahishta Unwalla)